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The Strategic Effects of Parallel Trade~Market stealing and wage cutting~

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Author Info

  • Arijit Mukherjee

    (School of Economics, University of Nottingham (UK) and The Leverhulme Centre for Research in Globalisation and Economic Policy, University of Nottingham (UK))

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

Why do producers often accept parallel trade in some markets such as automobiles, clothing, toys and consumer electronics? This paper identifies two new factors, viz., market stealing and union-wage cutting, which may make parallel trading beneficial to a manufacturer. Specifically, (i) under perfectly competitive labour markets in both the home and foreign countries, parallel trade may help a manufacturer to steal market shares from competitors, if it is more cost efficient or sells in more markets than competitors; and (ii) in a unionized labour market, parallel trade may help by lowering the unionized wage. These benefits of parallel trade disappear when such factors are removed.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-09.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2010-09.

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Length: 23 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:kob:dpaper:dp2010-09

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Related research

Keywords: Firm-asymmetry; Labour Union; Parallel import;

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